The latest interest rate futures pricing has Australia’s official cash rate sitting at 4.17% by the end of 2026.
Thus, financial markets are tipping at least two and possibly three 25 bp interest rate hikes by the end of this year.
If these forecasts came to fruition, variable mortgage rates would climb to around 6% by year’s end, adding around $220 per month in repayments on the average-sized new mortgage of $700,000.
The prospect of imminent interest rate hikes would normally crimp demand and drive a slowing in auction clearance rates and price growth.
However, Westpac’s latest consumer sentiment survey showed that Australians remain highly bullish on house prices, even though they believe that now is a worse time to buy a home due to affordability constraints.
As illustrated below by AMP, consumer house price expectations are tracking at close to their highest level in around 16 years.
Cotality has published its first auction report of the year, showing that demand remains solid, despite the prospect of rate hikes.
Source: Cotality
As illustrated above, this weekend’s national preliminary clearance rate was 69.7%, around 10 percentage points higher than a year earlier.
This preliminary result came from a 17% increase in volumes versus the same time in 2025.
In fact, this weekend’s 69.7% preliminary clearance rate was the highest since November 2025. All major capitals also recorded solid preliminary results.
In a similar vein, Cotality’s daily dwelling values index firmed in January, driven by rebounds in Sydney and Melbourne:
At the 5-city level, the 28-day growth in dwelling values has risen from 0.4% at the end of 2025 to 0.6% currently.
While home prices at the national capital city level are not growing at gangbuster rates, the growth remains solid, driven by the smaller markets of Perth, Brisbane, and Adelaide, which are starved of stock:
If the RBA delivers a rate hike as expected on Tuesday, it will be interesting to watch how the market reacts.
